people haven't been investing in property for rental values for a number of years.  Where they are making their money is in capital gains.  There seems to be a belief that property prices can not go down or even level off.  They don't remember the late 1980s/early 1990's when I had a discounted interest rate of 9% when the public were paying 18%. I had a unit for 5 years and the price went up for the first 4 years and the 5th year prices dropped so I got back at auction exactly the same price I paid for it.  That price didn't include stamp duty etc either.

People are too geared up to survive a downturn in property prices. We are in exactly the same mess the USA was in when their system collapsed triggering the GFC

Looking where I live, I'd say investors would be lucky to get 5% return on their rental properties - more like 3.9% or so. Outside capital cities, yeah, I can see they would be higher.

I had a landlord in inner Melbourne several years ago who was getting about 2% on the property I was renting at the time, it was because he had bought the property in the seventies and didn't care about the rate of return - it was more about the capital growth (of course). The downside was that he didn't give a sh*t about the condition of the property and I didn't have any proper heating or air conditioning in the time I was living there and had to provide my own. Swings and roundabouts, I lived the ultimate inner Melbourne lifestyle/career for many years in house that I could never afford to buy.

I read recently that rising mortgage stress in Sydney in particular is being masked by the fact that people just sell their houses and take the capital gain when they can't afford to pay the mortgage anymore. They can pretend that they sold for other reasons, and no-one's the wiser because everyone seems happy. Unfortunately, that approach may not remain viable long term, and there may come a time where an increasing number of people are still in debt after selling. Up until recently, low wages growth was offset by huge capital gains. Where will people go to "get ahead" if the capital gains also dry up? Looking elsewhere, there is always a celebration when consumer spending goes up, but it's still rising pretty slowly, and we have to factor in inflation and population growth. I suspect in many cases per capita spending is actually falling. If the floodgates of immigration remain open, a surplus of labour in an environment of depressed wages is only going to put more downward pressure on wages. The only ones who benefit are retailers, banks, property developers etc. because the pool of consumers has increased, and all employers, because increased competition for jobs means they don't need to give anyone a payrise. There's really not much to celebrate here.

This is a pretty good synopsis of the situation we find ourselves in now - my concern is that the people in charge have no capacity whatsoever to plan or prepare for our response to the future other than to continue the mounting public and private debt pile(s). Both are a big problem.

People are too geared up to survive a downturn in property prices. We are in exactly the same mess the USA was in when their system collapsed triggering the GFC

I read the other day (can't be bothered searching for the link right now) that the US Fed still owns something like US$6 trillion in housing mortgage bonds that they bought under duress in 2008/9 "emergency settings" and have not bothered selling (for some reason) since. I call bullsh*t on that one - they have purposely held onto those because they can't afford to pull the rug right out from underneath the US residential mortgage market; they are supporting the part of the US banking sector that sells mortgages to the populace just it case it all goes A over T again. There's a lot of government support/investment/involvement in the banking sector to keep it liquid in case of a crisis of confidence; it's a bit of a quasi-government institution in that way. Just like the Aussie government can't pull the Big Four guarantee; there's all sorts of reasons why we are not operating in a proper Adam Smith marketplace when you're dealing with the residential housing mortgage market here and in other Anglophone countries.

Why not withdraw those guarantees and sell the bonds? The only answer that I can come up with is that the loss of confidence in the capitalist system isn't something that the finance sector is prepared to wear.

Dense inner city apartment living in Sydney and Melbourne is putting profit before people warns Bill Randolph on The Conversation:

Town centres like Liverpool, Fairfield, Auburn, Bankstown and Blacktown in Sydney point the way. The cracks in the density juggernaut are already showing in many of the more recently built blocks in these areas – literally, in many cases.

This inexorable logic of the market will create suburban concentrations of lower-income households on a scale hitherto experienced only in the legacy inner-city high-rise public housing estates.

With the latter being systematically cleared away, the formation of vertical slums of the future owned by the massed ranks of unaccountable, profit-driven investor landlords is a racing certainty. The consequences are all too easy to imagine.

I've read that the authorities quietly agree with this, saying that there are a lot of dodgy operators out there running phoenix companies and building substandard structures for a quick buck. Apparently builders are allowed to sign-off on some aspects of their own work, and it is only later that they are found to be non-compliant with codes if it is ever discovered at all, by which time the phoenix company has self-immolated.

I've noticed on recent visits to Melbourne that some apartments built 10-15 years ago are ageing terribly and may need to be pulled down eventually. There's a large block of flats on the corner of Williamstown Rd & Francis St in Yarraville near where I used to live and I noticed recently that in addition to the fittings all rusting there are also large cracks everywhere - maybe because of the heavy truck traffic on Francis St?

Some of the older blocks of flats from the 70s and 80s are pretty awful, but they are at least solid structures; I doubt many of the new buildings will last as long. I have noticed the same problems in Sydney with buildings less than 10 years old. They are poorly designed and stuffed already.

The trouble for landlords with the boost in the supply of flats is that firstly it puts downward pressure on rent despite the population growth, and the outlook for rent growth is pretty dim anyway since wages are stagnant. They can't charge more rent than people are able to pay, and they are already pushing the limits. For that reason rents in the suburbs mentioned above haven't risen much over the last few years, and I have seen a number of occasions where greedy lanlords have misjudged the market and had to drop their rent due to lack of interest. This contrasts with the near endless stream of reports still claiming that things are looking up for investors and that vacancy rates are miniscule. I can't see how they are. Have a look on a rental website and see how many pages of vacant flats there are in the lower socioeconomic areas of south western Sydney. There's no shortage. Anyone who buys a flat in Sydney now is buying high, and will receive a low return.

people haven't been investing in property for rental values for a number of years.  Where they are making their money is in capital gains.  There seems to be a belief that property prices can not go down or even level off.  They don't remember the late 1980s/early 1990's when I had a discounted interest rate of 9% when the public were paying 18%. I had a unit for 5 years and the price went up for the first 4 years and the 5th year prices dropped so I got back at auction exactly the same price I paid for it.  That price didn't include stamp duty etc either.

Among the leveraged masses there is too much ego and emotional investment in the market for them to see the other side. The self-interested propaganda coming from the big end of town also suits them just fine. Voices of dissent are either ignored or ridiculed. Apparently, people who hate on the bubble are just jealous or something, because they aren't in debt up to their necks too. People seeking mortgages who are now being turned away by the banks may one day consider it a blessing.

People are too geared up to survive a downturn in property prices. We are in exactly the same mess the USA was in when their system collapsed triggering the GFC

For sure. People say Australia is different because of X, Y and Z reasons. But if you look at other countries where nasty corrections have occurred, like Ireland, people were saying that Ireland was different for exactly the same reasons. It wasn't, and nor are we. The only question is when the correction will arrive. We just don't know how much longer the bubble will continue inflating before it goes bang.

The notion of a "soft landing" we hear coming from politicians is just rubbish. Highly pressurised bubbles don't get a slow leak and pop softly. I'm confident we will see some real carnage.

Some of the older blocks of flats from the 70s and 80s are pretty awful, but they are at least solid structures; I doubt many of the new buildings will last as long. I have noticed the same problems in Sydney with buildings less than 10 years old. They are poorly designed and stuffed already.

The trouble for landlords with the boost in the supply of flats is that firstly it puts downward pressure on rent despite the population growth, and the outlook for rent growth is pretty dim anyway since wages are stagnant. They can't charge more rent than people are able to pay, and they are already pushing the limits. For that reason rents in the suburbs mentioned above haven't risen much over the last few years, and I have seen a number of occasions where greedy lanlords have misjudged the market and had to drop their rent due to lack of interest. This contrasts with the near endless stream of reports still claiming that things are looking up for investors and that vacancy rates are miniscule. I can't see how they are. Have a look on a rental website and see how many pages of vacant flats there are in the lower socioeconomic areas of south western Sydney. There's no shortage. Anyone who buys a flat in Sydney now is buying high, and will receive a low return.

The way I see it I think people farming though selling visas has become an acceptable substitute to having a real economy based on fundamentally sound and diverse industries; it was a confluence of factors but I do principally blame Howard and Costello for their too-favourable changes to the tax system around the time of the GST. Turned out to be un-necessary compensation for the one-off adjustment in building costs; then when the housing market on the eastern seaboard looked a bit floppy around 2002 they unilaterally decided to open the floodgates and double the long-term migration numbers.

Since then I think the agenda has been almost completely set by banking/finance/real estate to the point where we recently had Harry Triguboff calling for the government to issue more visas to overseas buyers... eg: as I understand it if you bought four of Harry's apartments you'd be considered a business owner and given a visa. I think Harry actually wants the floodgates to be opened even further.

As an aside, speaking of Harry Triguboff's specific kind of high rise product; as the towers age they become very expensive to maintain and the main issue I'm told is the lifts. You can be up for really pricey body corporate fees as the lifts age, an engineer friend tells me that the constant wear and tear in the those buildings really adds up especially 10+ years after completion.

Dr Bob Birrell, head of the Population Research Institute writing in the Herald Sun:

Overall, [Victoria] imported $51 billion extra in goods and services than it exported last year, while Western Australia posted a $62 billion trade surplus and Queensland had a $12 billion surplus. “Victoria is a parasite state — we are relying on the rest of Australia to provide for our ­import-intensive lifestyle,” he said. Dr Birrell said Melbourne’s growth was driving this dependence, with the Andrews Government enjoying a jobs boom.

“However, the boom is being driven by employment growth in the health, social assistance and education industries that are largely financed by the federal and state governments,” he said. “And a boom in the finance and property industries fuelled by a massive increase in mortgage investment debt. It’s a mirage.”

Too right - education, healthcare, child-care - they're all paid for by the government. The boom areas for employment in recent years have all been because governments are spending money they don't have on providing services that can't be sustained. The other half of the equation is building and construction, turbocharged by Melbourne's absorption of 90,000+ people every year (a full MCG). They should not be patting themselves on the back for it - none of these things are the least bit sustainable in years to come.

Gerry Harvey announces record profits for the Harvey Norman group of around $450 million but still can't help but have a veiled swipe at Dick Smith's call for a reduction in immigration (News Ltd):

Mr Harvey said immigration and population growth were impossible to control.
“The problem is you can’t control it,” he said. “The rest of the world at some stage is not going to let you control it. Sometimes when you smell the inevitable you’ve got to go along with it.

“You’re going to come under immense pressure, it may be like boat people coming in huge numbers. It’s a utopian idea that some people have, in a lot of ways I can see the worth of it, but will you ever be able to hold it to some number under 25 to 30 million? Not a chance in hell.
“It was obvious to me [since] university. Australia is going to become an Asian country, 100 per cent for sure. It’s just a matter of when. You might have close to four billion Asians in the world, where do you think they’re going to live?”

Two words, Gerry - arable land. We have bugger all arable land in comparison to other continents - how will the hundred million plus people support themselves? We will have to become a net importer of food. Where will all these people live given almost half the nation is already crammed into Sydney and Melbourne... two guesses!

Gerry Harvey and Harry Triguboff have built their wealth on the back of a mass immigration to Australia that was totally unprecedented in our history - more immigrants per cent per year than even the Gold Rushes - but that they're not taking into consideration the environmental and social pressures that will emerge if these trends continue. The last 14 years have been historically unprecedented (Melbourne grew by 1.2 million people for example) and if we can manage to survive as an integrated nation into the future it will not be be with cities of 20-30 million people on the eastern seaboard like they're predicting (hoping?), I don't think our nation will survive the social pressures that huge amounts of mass-migration on that scale will bring upon us.

Gerry doesn't care that the quality of life for people diminishes in Sydney and Melbourne as they become akin to Mexico City or Lagos... he just wants to make more money.

Interesting analysis from economics writer/blogger John Menadue on the phenomenon of falling living standards in Australia:

Low wage growth is an economic problem because the very dynamic of capitalism is a circular one, with wages driving consumption and consumption driving wages. That’s the simple mathematics of Economics 101 – a point missed by those business lobbies who continue to press for more “flexibility”, a term which suggests accommodation of the changing needs of corporations and employees, but which in reality means one-way flexibility on the corporate side and a squeeze on real wages, manifest most starkly in recent demands for cuts in weekend penalty rates...

...I suspect that readers don’t need official statistics to demonstrate that their real incomes are going backwards. The data used in this article is almost two months old, and by now people will be experiencing higher utility charges and higher fees for other services such as public transport and toll roads – the September quarter consumer price index usually shows a sharp rise as cash–strapped state governments lift fees and charges to compensate for Commonwealth–imposed fiscal stringency.

Will it take hard data showing that real wages are actually falling for our politicians to wake up to the need to change their policies?

The part that I don't understand is nobody recognises the danger that falling wages poses to whole financial system - a system that relies on fundamentally ever-increasing debt in order to keep the whole show going: It will grind to a complete halt if people have less money to secure borrowings with. Added to that pressure is the enormous growth in the cost of gas and electricity - things that grow at or above the official inflation rate of 1.9%.

The tide is still going out in Western Australia... you get to see who was swimming naked.

Perth society architect Jean-mic Du Buisson Perrine declares bankruptcy earlier this month after being pursued for many years over several failed schemes including a "luxury pod" transportable home concept that was never actually delivered by his company (The West):

Jean-mic Du Buisson Perrine and his wife Mercedes declared bankruptcy on August 16, a day before an appeals court confirmed that they were liable for $1.35 million in bills incurred by their pod-home building company while it was insolvent. Statements of affairs filed with the Australian Financial Security Authority list as much as $20 million said to be owed by the couple to creditors including Georgiou Group, Westpac Bank, Commonwealth Bank and Perth liquidator John Carrello...

...A 2007 profile by the Sunday Times talked of Mr Perrine as “a big man who talks with expansive gestures and loves nothing more than to assemble a group of friends artists, theatrical people and other movers and shakers around a lunch table and talk about the world as it could be”.

Perth old money probably would have stayed away from doing deals someone as flashy and pretentious as that but the list of companies and banks that he's owing money is as long as your arm... we haven't had our Alan Bond for the 21st century moment yet though, although maybe he/she is still lurking out there in plain sight?

The government's youth $4 an hour scheme "PATH" is only months old but has already had scores of employers banned for not even bothering to pay its victims a miserable $4 an hour (Buzz Feed):

Newstart allowance recipient Lauren (not her real name) agreed to start a PaTH internship at an Espresso Lane coffee chain franchise in Wollert on Melbourne's northern fringe in early July.

But before she had even signed a contract, the 19-year-old said she was rostered on for two eight-hour days over a weekend.

"[The manager] said he would give me gift cards [as payment], but he didn't say when," the 19-year-old told BuzzFeed News.

"I hadn't been informed about what the internship was, and I hadn't even seen the contract at this point.

"I still haven't got any money [for the 16 hours of work], or the gift cards."

A Melbourne man, David, told BuzzFeed News yesterday he was chasing more than $2,000 in lost wages after he worked unpaid overtime for the same business.

Having worked in that employment services sector for many years it seems certain that there'll be dodgy employers attracted to this thing like bees to a honey-pot. It also seems likely that there'll be no jobs for people at the end of their 'internship' - not when there's a queue of other $4 an hour people to be had.

Ok Don,

I'm back in Dubai and you wanted feedback.

Sydney, we stayed next to Darling Harbour, same place as 3 years back so I have a good reference for the changes in that area.
- Clearly Sydney is booming and I really challenge those who cannot find work and not willing to try anything as I saw lots of signs for people wanted in shops in the city. I have a friend who moved back to NW Sydney from Dubai after 8 years, she is VP HR in Dubai, but after 3-4 mths still unemployed and last job had 50 people applying. But another interview she was told they wanted recent local experience so the people behind the desk are likely the ones who should be unemployed. Her husband had a job on return and struggling to find metal workers for his employer and going OS for asians.

- Construction everywhere and Chatswood has changed alot. Cars everywhere were relatively new.

- All my friends and family talk about house prices and they fear for the next generation and concerns of a major collapse

- Sydney is clearly feeding off govt spending and SME's growth and service sector alot catering for the migration into the city.

- Trains were well used even off -peak and weekends and at night, safe and clean. Wasn't like that under previous govt.

- Sydney International Airport Arrivals is a disgrace, too crammed. Come on BC


Adelaide
- Last and first time I was there was 2000, staying on south terrace. This time at freind who moved from Dubai, Indian Migration. Rented in Bowden got job 3 months before coming that was listed for 9mths, pays 90k, Trainer for company that works with Telstra and looks after NT/SA.
-   Bowden area was really nice, clean, modern but retaining his historical charm.

-  Cars in this area were not cheap, but not Sydney. Overall the cars are clearly older.

- Solar panels on most roofs. Pity this doesn't keep the lights on if the grid fails. Bunnings was well used by well dressed people

-  We caught tram to Glenelg and the beach front area was fairly nice and kids loved the park. The houses along the corridor all seemed well kept

- Bowden area has lots of govt and private sector construction

- The City looked well kept with investment and construction. My usual metric, "high heel count" was fairly strong. (you want to gauge a city or suburb, look at the women, not the men. What they wear reflects the income to the area and high heels is a easy thing to count. Women with money loving wearing expensive shoes, which are 99% high heels. Yes the High Heel count was lower than Dubai, alot lower)

- Overall the city centre doesn't look like there is an employment issue and the city and surrounding locations I went too didn't have closed shops. Hard to find one.

- Airport was nice, clean and well laid out. We flew back to Dubai direct. I did notice Dnata stairs to a Qatar Airways plane, considering the current issues in Gulf, a number of people got a laugh out of that on Facebook.

- My friend (Indian passport holders but barely ever lived there) is renting a modern 3 bed house in Bowden for about $500 a week (I don't know, just guessed from looking at real estate). They didn't want to go to Adelaide and preferred Melbourne because friends are there, but PR was issued by SA govt. However being in a house 3km from city centre for an affordable price and 4mths in SA has changed their minds and they will most likely stay beyond their 2 years requirement. He'd buy a house now but lacks a 20% deposit. they also know quite a few others migrating to Adelaide under SA sponsorship and most are getting jobs ok. Another couple I know of (also Indian decent) got sponsorship by NT govt and moved to Darwin. They dreaded the moved and said they were moving to the east coast as soon as their 2 years is up. They both have nice jobs within 6mths, happy, bought a house and no intention to move on.


Overall, I was looking at ABC monthly report on Real Estate, WA has suffered now a 10% loss off the peak price, so again a loss if you bought at the peak but still within 20% deposit so nothing too dramatic for most unless you were on your limit at time of buying and more so for investors than owners occupiers.

Rental returns, well what return? Less than 4-5% gross for most of the country which means after agents fees, MTCE, rates etc but not including interest is around 1-3% return. Why bother? Unless you know you will get capital growth of plus 10%, may as well go into a Managed Fund. Brisbane remains soft and affordable and while we nearly came home last year but only stopped due to medical issues, looking at prices in the same areas things have not changed a great deal for us. Potentially we may buy next year and rent out for 1-2 years to make use of he tax system to reduce ownership costs.

Thanks for your report of your trip, RTT_Rules.

Outgoing Wesfamers/Coles CEO Richard Goyder warns that taking the heat out of the Sydney and Melbourne property markets was the biggest economic challenge of our time (Herald-Sun) but then seems to back away from what he said:

“Our housing market needs to be carefully managed and I think it is, between the Reserve Bank and the banks,” Mr Goyder said.

“Just moderating what has happened with housing prices, particularly in Sydney and Melbourne, we certainly don’t want a bubble bursting there.

“The thing to avoid is a house price bubble and I think all our policymakers are working hard to ensure that won’t happen and I’d be pretty confident that won’t happen as well.”

If you're confident that it won't happen then why even bother mentioning it, Richard? Meanwhile Social Services Minister Christian Porter comes out swinging against the AMA, telling them that they weren't interested in helping people with drug problems (alcohol problems don't figure at all apparently?) (Fairfax)

"This approach is not designed to solve every problem of every person that tests positive, but based on what we know about compelling people into treatment it has a reasonable probability of helping sufficient numbers of people to make it worthwhile. With ice and other drugs ruining employment prospects, lives and communities, the alternative is to fail to try something new, which only guarantees no one is helped at all," Mr Porter said...

...As many as 1750 young people and job seekers in western Sydney, 2500 in Logan, Queensland, and 750 in Mandurah, Western Australia, will be drug tested and face strict welfare quarantining measures as early as next year should the Senate approve the government's contentious welfare crackdown.

I did read somewhere that this new program will cost - for the most protracted cases - somewhere in the vicinity of $30,000 per participant. Couldn't they just buy them jobs with that kind of money?

I didn't even know you could do this: The issuing of new loans for property is often done against unrealised capital gains on your existing portfolio (News Ltd):

The report, “The Big Rort”, by LF Economics founder Lindsay David, argues Australian banks’ use of “combined loan to value ratio” — less common in other countries — makes it easy for investors to accumulate “multiple properties in a relatively short period of time despite high house prices relative to income”.
“The use of unrealised capital gain (equity) of one property to secure financing to purchase another property in Australia is extreme,” the report says.
“This approach allows lenders to report the cross-collateral security of one property which is then used as collateral against the total loan size to purchase another property. This approach substitutes as a cash deposit.
“This has exacerbated risks in the housing market as little to no cash deposits are used.”

What could possibly go wrong!

THE official ABS Gross Domestic Product figures are released today and shows that households are not saving money and are experiencing a freeze in incomes. Scott Morrison immediately ties himself in knots trying to explain away the poor figures (News):

“We are seeing more and more evidence of how things are improving and it’s not surprising that households, families, businesses will reflect that in a lot of their own decisions,” he told reporters in Canberra... The accounts revealed “solid and more balanced growth for our economy,” he said. But he did acknowledge wage growth would be constrained until company profits and productivity increased.
“There’s no chicken and egg conundrum when it comes to wages and profitability and investment,” he said.
“What has to come first is companies have to make money to be able to pay more in higher wages.
“You can’t get a pay rise in a business that isn’t making any money and you can’t get a job in a business that’s shut.”

Business profits are not in free-fall, Mr. Morrison - wages are. And businesses don't decide to pay their employees more wages simply because they're making more money - they tend to keep profits for themselves don't they. The only reason they would want to pay employees more is because they can't get the right employees and they want to keep the ones they've got - like RTT_Rules earlier on and his story about the shortage of skilled workers in Sydney. PAY THEM MORE - that's the answer. It's a market-place, offer more money, get better workers... that's how capitalism works.

ON the whole though wages are continuing to fall below inflation precisely because most Australians are experiencing the opposite problem, there's too many workers in most industries and not enough work.

Don,
I would suggest all jobless welfare recipients be targetted for random D&A testing. As the old saying goes, if you have to be D&A free for work, you should be to claim welfare when you are jobless.

The biggest issue we had at Boyne during the mining boom was getting contractors that were sober and drug free, with a failure rate of frequnetly topping 25% for a 100% testing program, it goes to show that many of those worker as a contractor during a boom and likely to be unemployable outside a boom.

THE official ABS Gross Domestic Product figures are released today and shows that households are not saving money and are experiencing a freeze in incomes. Scott Morrison immediately ties himself in knots trying to explain away the poor figures (News):

“We are seeing more and more evidence of how things are improving and it’s not surprising that households, families, businesses will reflect that in a lot of their own decisions,” he told reporters in Canberra... The accounts revealed “solid and more balanced growth for our economy,” he said. But he did acknowledge wage growth would be constrained until company profits and productivity increased.
“There’s no chicken and egg conundrum when it comes to wages and profitability and investment,” he said.
“What has to come first is companies have to make money to be able to pay more in higher wages.
“You can’t get a pay rise in a business that isn’t making any money and you can’t get a job in a business that’s shut.”

Business profits are not in free-fall, Mr. Morrison - wages are. And businesses don't decide to pay their employees more wages simply because they're making more money - they tend to keep profits for themselves don't they. The only reason they would want to pay employees more is because they can't get the right employees and they want to keep the ones they've got - like RTT_Rules earlier on and his story about the shortage of skilled workers in Sydney. PAY THEM MORE - that's the answer. It's a market-place, offer more money, get better workers... that's how capitalism works.

ON the whole though wages are continuing to fall below inflation precisely because most Australians are experiencing the opposite problem, there's too many workers in most industries and not enough work.

Yes, very disingenous of the Treasurer there, although I'd expect nothing else from our pathetic trash-talking politicians.

Wages are probably going to remain quite stagnant for the foreseeable future due to the continuing influx of immigrants, which increases competition for available jobs, thereby putting downward pressure on the price of labour.

With a surplus of labour, it's an employer's market. Add to that weak, highly-regulated and restricted unions with low membership density, and it's a perfect environment for employers to minimize wages and conditions while maximizing profits. The only trouble is, many, and I'd say a growing number, of consumers - recipients of stagnant wages - are struggling to spend on anything non-essential, let alone save. All the more reason to keep bringing more immigrants in, because it increases the pool of consumers and cheap labour, offsetting their reduced spending capacity. Looks like a race to the bottom. Who cares if everyone else's standard of living falls slightly as a result? Not the business owners.


In NSW, the proportion of median family (not individual) income required to service the median mortgage is now 38%, way over the ideal maximum of 30%. In Sydney, 55.7% of suburbs now have median house prices (I won't use the term "value") in excess of $1M. As someone at Deloitte said earlier in the year, "this thing's gonna blow".
https://www.macrobusiness.com.au/2017/09/aussie-home-loan-repayments-breach-30-unaffordable-threshold/

Has anyone been looking at the housing situation in Toronto, Canada, lately? I've been seeing some scary reports, like near-30% dips in average sale prices in the last five months. It should ring alarm bells for Australia owing to the similarities with Canada. For example, both are immigrant hotspots and foreign buyers played a role in both markets. Negative equity cases are on the rise.

I would suggest all jobless welfare recipients be targetted for random D&A testing. As the old saying goes, if you have to be D&A free for work, you should be to claim welfare when you are jobless.

I support this provided the cost of testing doesn't greatly outweigh the benefit. I'm guessing a large testing programme would be quite expensive. The thing is, our unproductive government bureaucracies are already too big. If the state can recoup or nearly recoup the costs of testing by cutting off payments to those who test positive, fine, but I have my doubts.

Wages are probably going to remain quite stagnant for the foreseeable future due to the continuing influx of immigrants, which increases competition for available jobs, thereby putting downward pressure on the price of labour.

With a surplus of labour, it's an employer's market. Add to that weak, highly-regulated and restricted unions with low membership density, and it's a perfect environment for employers to minimize wages and conditions while maximizing profits. The only trouble is, many, and I'd say a growing number, of consumers - recipients of stagnant wages - are struggling to spend on anything non-essential, let alone save. All the more reason to keep bringing more immigrants in, because it increases the pool of consumers and cheap labour, offsetting their reduced spending capacity. Looks like a race to the bottom. Who cares if everyone else's standard of living falls slightly as a result? Not the business owners.

Stagnant or falling wages are a symptom of a very unhealthy economy - Morrison won't acknowledge this but in an economy geared towards borrowing exponential amounts of money for more housing and consumption any contraction in the capacity of the public to pay their bills is going to have a knock-on affect ultimately though to the banking system - even though your wages might be going down your mortgage or rent certainly won't. Things seem quite rosy so long as those interest rates stay stuck at "emergency" post-war lows but even then we have quite high mortgage arrears emerging in places like Mandurah/Clarkson WA and Ballarat/Craigieburn/Cranbourne VIC where the suburban growth has been highest in the last ten years. As you say the dominant school of thought since 2003 has been to simply keep immigration levels at historically unprecedented levels but ultimately if wages keep falling it will probably precipitate a credit squeeze in response to all the bad loans and at that point I think the whole thing will unravel.

We're at the end stage of over 30 years of war on the working class initiated by Hawke and Keating with their one-sided "Accord" - under a so-called Labor government corporate profits skyrocketed in the mid-eighties while workers were left behind. It's inevitable that with almost no unions left in the private sector (less than 10% coverage) and a mass-migration program bringing hundreds of thousands of new entrants every year that the labour market is going to continue to get harder and that wages will continue to free-fall.

Incidentally I don't think there's any way the government could possibly make good on their covered bond guarantee to the Big Four Banks unless they either raided the super funds or printed money like crazy leading to an inflationary spiral; there are over 1 trillion $AU in liabilities the banks hold in Aussie mortgage markets - the Commonwealth government simply doesn't have that much money. Even if only a third of mortgages went delinquent that's still around $300,000,000,000 they'd need.

I support this provided the cost of testing doesn't greatly outweigh the benefit. I'm guessing a large testing programme would be quite expensive. The thing is, our unproductive government bureaucracies are already too big. If the state can recoup or nearly recoup the costs of testing by cutting off payments to those who test positive, fine, but I have my doubts.

It's an incredibly expensive program designed to make it appear that they're "tough on those bludgers" when in reality it will cost a fortune (up to $30,000 per participant) and probably deliver nothing. Sending tens of thousands of welfare recipients for a proper pathology screening will cost hundreds of millions to begin with - I can already hear people like Dorevitch and Clinpath clapping their hands together with glee at the prospect of all that government money flowing into their coffers.

Nobody will lose their benefit if they test positive - they will be forced onto income management card where 80% of their benefit gets paid onto a "Basics Card" which can only be used for things like groceries and rent. Participants are also mandated to go to drug & alcohol counselling and medical services etc. I can tell you now that a Basics Card will be absolutely no deterrent to a lot of drug-addled welfare recipients, they will find ways around it. And it's no good trying to force people into counselling who (on the whole) will not want to stop their drug or alcohol abuse because of their situation - they just won't listen.

Between 2011-2016 the number of people on unemployment benefits in the City of Playford (SA) increased by 2,200 people; it's no good telling those people in the fringe ghettos that if they're clean and sober they'll get jobs. The jobs are simply not there to be had - not in those locations anyway.

Incidentally I don't think there's any way the government could possibly make good on their covered bond guarantee to the Big Four Banks unless they either raided the super funds or printed money like crazy leading to an inflationary spiral; there are over 1 trillion $AU in liabilities the banks hold in Aussie mortgage markets - the Commonwealth government simply doesn't have that much money. Even if only a third of mortgages went delinquent that's still around $300,000,000,000 they'd need.

That's why I say the lowering of the government's bank deposit guarantee from $1M down to $250k was a warning that the perceived risk of having to pay out had shot up - and that was done years ago, so obviously someone in the government had already worked out that the fit was eventually going to hit the shan. Banks are very secretive about their risk calculations because that sensitive information could affect market sentiment, and the government must also be very secretive for the same reason.

Stagnant or falling wages are a symptom of a very unhealthy economy - Morrison won't acknowledge this but in an economy geared towards borrowing exponential amounts of money for more housing and consumption any contraction in the capacity of the public to pay their bills is going to have a knock-on affect ultimately though to the banking system - even though your wages might be going down your mortgage or rent certainly won't. Things seem quite rosy so long as those interest rates stay stuck at "emergency" post-war lows but even then we have quite high mortgage arrears emerging in places like Mandurah/Clarkson WA and Ballarat/Craigieburn/Cranbourne VIC where the suburban growth has been highest in the last ten years. As you say the dominant school of thought since 2003 has been to simply keep immigration levels at historically unprecedented levels but ultimately if wages keep falling it will probably precipitate a credit squeeze in response to all the bad loans and at that point I think the whole thing will unravel.

Something we don't hear much about are the other things people can use their mortgages for. Once you have a home loan, you can take advantage of the much lower lending rate to consolidate your other debts like personal loans, repeatedly use the redraw facility to pay off credit cards, and of course you can take on even more non-housing related debt for whatever you like. The end result probably is that a whole lot of money pissed up the wall on non-assets, that could never be recovered, ends up packaged in "AAA" housing debt products. The banks probably thought it was fine while huge capital gains were still happening to offset irresponsible consumer spending, but they may be having second thoughts now.

A few months ago I heard that the Australian luxury car boom was cooling because, as it turns out, many of those luxury German cars on the road were not purchased with income or savings but simply tacked on to the overblown family home loan. Presumably, tightening lending criteria have put paid to that. According to this article the annual growth in sales has fallen from 19.7% in April 2016 to 5.2% in March 2017, which is quite a drastic change. The article also links a decline in luxury car sales to a decline in the housing market.

Stagnant or falling wages are a symptom of a very unhealthy economy - Morrison won't acknowledge this but in an economy geared towards borrowing exponential amounts of money for more housing and consumption any contraction in the capacity of the public to pay their bills is going to have a knock-on affect ultimately though to the banking system - even though your wages might be going down your mortgage or rent certainly won't. Things seem quite rosy so long as those interest rates stay stuck at "emergency" post-war lows but even then we have quite high mortgage arrears emerging in places like Mandurah/Clarkson WA and Ballarat/Craigieburn/Cranbourne VIC where the suburban growth has been highest in the last ten years. As you say the dominant school of thought since 2003 has been to simply keep immigration levels at historically unprecedented levels but ultimately if wages keep falling it will probably precipitate a credit squeeze in response to all the bad loans and at that point I think the whole thing will unravel.

Something we don't hear much about are the other things people can use their mortgages for. Once you have a home loan, you can take advantage of the much lower lending rate to consolidate your other debts like personal loans, repeatedly use the redraw facility to pay off credit cards, and of course you can take on even more non-housing related debt for whatever you like. The end result probably is that a whole lot of money pissed up the wall on non-assets, that could never be recovered, ends up packaged in "AAA" housing debt products. The banks probably thought it was fine while huge capital gains were still happening to offset irresponsible consumer spending, but they may be having second thoughts now.

A few months ago I heard that the Australian luxury car boom was cooling because, as it turns out, many of those luxury German cars on the road were not purchased with income or savings but simply tacked on to the overblown family home loan. Presumably, tightening lending criteria have put paid to that. According to this article the annual growth in sales has fallen from 19.7% in April 2016 to 5.2% in March 2017, which is quite a drastic change. The article also links a decline in luxury car sales to a decline in the housing market.

It would appear "Status Anxiety" is alive and well.  The people I've known to be the smartest when it comes to finance tend to drive 5-10 year-old sedans or station wagons that can be bought for about the same amount as the depreciation on above luxury car as it exits the dealership driveway...

It would appear "Status Anxiety" is alive and well.  The people I've known to be the smartest when it comes to finance tend to drive 5-10 year-old sedans or station wagons that can be bought for about the same amount as the depreciation on above luxury car as it exits the dealership driveway...

Status anxiety is definitely alive and well, and it's being made worse by easy access to debt. While debt can support future income and wealth, that only applies where applied sensibly. Going into tens of thousands of dollars worth of debt for a luxury car is probably never a very sensible thing to do, and it's also a dead loss. Going into huge debt purely to speculate on house prices is also not sensible, but highly lucrative, for a time.

Meanwhile in Ireland, where house prices fell 56% in their crash that ran from 2007 to about 2012, 100,000 homes are still in negative equity in 2017 (down from nearly a third of the market a few years ago), even more would have lost value without wiping out all equity, rents are high, and yet there are signs of a new bubble forming. The central bank has apparently tried to keep a lid on it by insisting on deposits of at least 20% and capping mortgages of 3.5 times annual household income.

Looking at the US, Ireland and Spain, it's clear that housing bubbles tend to deflate over a period of five years or more, and trouble persists much longer than that. In Ireland, it started with monthly price dips of 0.6%, 0.8% in early 2007, and there were predictions of modest falls of 3% or so. Those employed in the finance sector always tend to understate the risks to avoid hurting market confidence. Of course, we know that what started with 0.6% dips ended up getting far worse, since by June 2009 prices had fallen 40%. Now, look at Sydney, where the market is slowing, and there have already been predictions of 10% falls. But according to street science, we're different here. Somehow, we're immune to it all.

It would appear "Status Anxiety" is alive and well.  The people I've known to be the smartest when it comes to finance tend to drive 5-10 year-old sedans or station wagons that can be bought for about the same amount as the depreciation on above luxury car as it exits the dealership driveway...

Status anxiety is definitely alive and well, and it's being made worse by easy access to debt. While debt can support future income and wealth, that only applies where applied sensibly. Going into tens of thousands of dollars worth of debt for a luxury car is probably never a very sensible thing to do, and it's also a dead loss. Going into huge debt purely to speculate on house prices is also not sensible, but highly lucrative, for a time.

I have friends in Melbourne who treated a (paper) appreciation in the value of their home like it was a lotto win - borrowing money from their mortgage to finance a very expensive holiday and then later on buying a luxury 4WD. They were congratulating themselves on how clever they were at the time because they got these things at a much lower interest rate but the car is now worth a fraction of what they paid for it and the holiday a distant memory - meanwhile they'll be paying off those things for decades to come because it got lumped on their mortgage.

They would have been better off with a short-term loan at a higher rate, they probably would have actually paid less in interest. I think there's actually a lot of ignorance out there about the real costs of mortgage re-draw; it's actually not a good idea unless you're using the money to improve the value of the property.

Talking of mortgages and honesty:
http://www.abc.net.au/news/2017-09-11/500b-dollars-of-liar-loans-in-australia-ubs/8892030

What could possibly go wrong?